Notices / News Releases
1.1.2
CSA Staff Notice 52-306 (Revised) – Non-GAAP Financial Measures and Additional GAAP Measures
CANADIAN SECURITIES ADMINISTRATORS’ STAFF NOTICE 52-306 (REVISED)
NON-GAAP FINANCIAL MEASURES AND ADDITIONAL GAAP MEASURES
Revision and Republication
Staff updated this notice on November 9, 2010 to reflect the changeover to International Financial Reporting Standards (IFRS).
Staff updated this notice on February 17, 2012 to provide further guidance on disclosure of additional GAAP measures
presented under IFRS.
I.
Purpose
This notice provides guidance to an issuer that discloses non-GAAP financial measures or additional GAAP measures, as those
terms are described in this notice.
A non-GAAP financial measure is not presented in financial statements, whereas an additional GAAP measure is presented in
financial statements.
The notice applies both to an issuer that uses IFRS as well as an issuer that uses accounting principles other than IFRS.
II.
Non-GAAP Financial Measures
For the purpose of this staff notice, a non-GAAP financial measure is a numerical measure of an issuer's historical or future
financial performance, financial position or cash flow, that does not meet one or more of the criteria of an issuer’s GAAP for
presentation in financial statements, and that either:
(i)
excludes amounts that are included in the most directly comparable measure calculated and presented in accordance
with the issuer’s GAAP, or
(ii)
includes amounts that are excluded from the most directly comparable measure calculated and presented in
accordance with the issuer’s GAAP.
Non-GAAP financial measures are not presented in an issuer’s financial statements.
Some issuers disclose non-GAAP financial measures in press releases, management's discussion and analysis (MD&A),
prospectus filings, websites and marketing materials.
Many non-GAAP financial measures are derived from profit or loss determined in accordance with an issuer’s GAAP and, by
omission of selected items, present a more positive picture of financial performance. A ratio such as return on assets that uses
an amount for assets, profit or loss that differs from the amounts presented in the issuer’s financial statements is also a nonGAAP financial measure. Terms used to identify non-GAAP financial measures may include "pro forma earnings", “cash
earnings", "free cash flow", "distributable cash", "EBITDA", "adjusted earnings", and "earnings before non-recurring items".
These terms generally lack standard meanings. Different issuers may use the same term to refer to different calculations or one
issuer may vary its definition of a particular term from one period to another period.
Staff is concerned that investors may be confused or even misled by non-GAAP financial measures. Staff is also concerned
about the prominence of disclosure given to non-GAAP financial measures related to earnings compared to the prominence of
profit or loss determined in accordance with an issuer’s GAAP. In staff’s view, these concerns can be addressed by appropriate
disclosure accompanying non-GAAP financial measures.
III.
Disclosure Accompanying Non-GAAP Financial Measures
Financial statements prepared in accordance with an issuer’s GAAP provide investors with a clearly defined basis for financial
analysis and comparison among issuers. Staff recognizes that non-GAAP financial measures may provide investors with
additional information to assist them in understanding critical components of an issuer's financial performance. However, an
issuer should not present a non-GAAP financial measure in a way that confuses or obscures the most directly comparable
measure calculated in accordance with the issuer’s GAAP and presented in its financial statements.
Staff reminds issuers of their responsibility to ensure that information they provide to the public is not misleading. Staff also
reminds certifying officers of their obligations under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and
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Interim Filings to make certifications regarding misrepresentations, fair presentation, and disclosure controls and procedures. A
non-GAAP financial measure may be misleading if it includes positive components of the most directly comparable measure
calculated in accordance with the issuer’s GAAP and presented in its financial statements but omits similar negative
components. Staff cautions issuers that regulatory action may be taken if an issuer discloses information in a manner
considered misleading and therefore potentially harmful to the public interest.
In order to ensure that a non-GAAP financial measure does not mislead investors, an issuer should clearly define the measure
and explain its relevance. As well, an issuer should present the measure on a consistent basis from period to period or explain
any changes. Specifically, an issuer should:
1.
state explicitly that the non-GAAP financial measure does not have any standardized meaning prescribed by
the issuer’s GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers;
2.
present with equal or greater prominence to that of the non-GAAP financial measure, the most directly
comparable measure calculated in accordance with the issuer’s GAAP and presented in its financial
statements;
3.
explain why the non-GAAP financial measure provides useful information to investors and the additional
purposes, if any, for which management uses the non-GAAP financial measure;
4.
provide a clear quantitative reconciliation from the non-GAAP financial measure to the most directly
comparable measure calculated in accordance with the issuer’s GAAP and presented in its financial
statements, referencing to the reconciliation when the non-GAAP financial measure first appears in the
document, or in the case of content on a website, in a manner that meets this objective (for example, by
providing a link to the reconciliation);
5.
explain any changes in the composition of the non-GAAP financial measure when compared to previously
disclosed measures.
In staff's view, non-GAAP financial measures generally should not describe adjustments as non-recurring, infrequent or unusual,
when a similar loss or gain is reasonably likely to occur within the next two years or occurred during the prior two years.
IV.
Additional GAAP Measures Presented under IFRS
For the purpose of this staff notice, an additional GAAP measure presented in financial statements under IFRS is:
(i)
a line item, heading or subtotal that is relevant to an understanding of the financial statements and is not a minimum
line item mandated by IFRS (see IAS 1 Presentation of Financial Statements (IAS 1) paragraphs 55 and 85), or
(ii)
a financial measure in the notes to financial statements that is relevant to an understanding of the financial statements
and is a measure not presented elsewhere in the financial statements (see IAS 1 paragraph 112(c)).
IFRS mandates certain minimum line items for financial statements and requires presentation of additional line items, headings
and subtotals when such presentation is relevant to an understanding of an entity’s financial position and performance. IFRS
also requires the notes to financial statements to provide information that is not presented elsewhere in the financial statements,
but is relevant to an understanding of them. Because IFRS requires such additional GAAP measures, they are not non-GAAP
financial measures.
Similarly, IFRS permits certain financial measures such as alternative earnings per share if certain conditions are met. Because
IFRS expressly permits such measures, they are not non-GAAP financial measures.
IFRS requires fair presentation, which includes the faithful representation of transactions, other events and conditions. A fair
presentation also requires issuers to present financial information in a manner that is relevant, reliable, understandable,
comparable and consistent period over period. An issuer should consider these requirements when determining whether and
how to present additional GAAP measures.
Issuers must exercise judgement to determine whether a measure qualifies as an additional GAAP measure. As noted in section
III of this notice relating to non-GAAP financial measures, issuers have a responsibility to ensure that information they provide to
the public is not misleading. In addition, certifying officers have obligations under National Instrument 52-109 Certification of
Disclosure in Issuers’ Annual and Interim Filings to make certifications regarding misrepresentations, fair presentation, and
disclosure controls and procedures. The following practices will help issuers and certifying officers address these obligations in
relation to additional GAAP measures:
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1.
name an additional GAAP measure in a way that distinguishes it from minimum disclosure items required by
IFRS and is meaningful given the composition of the additional GAAP measure. For example, the name
“income before the undernoted items” is generally not meaningful because “undernoted items” does not
sufficiently describe the elements that are missing from “income”. In addition, it does not facilitate a crossreference to MD&A or other documents. Similarly, an unnamed subtotal is not meaningful;
2.
avoid using IFRS terms within a name for an additional GAAP measure unless the IFRS meaning applies. For
example, the name “profit before tax” would be appropriate only if the IFRS meaning of profit applies;
3.
present an additional GAAP measure in a manner that does not confuse, obscure, or exceed the prominence
of, minimum disclosure items required by IFRS on the face of financial statements or in the notes to financial
statements;
4.
explain in either the notes to financial statements or in corresponding MD&A why the additional GAAP
measure provides useful information to investors and the purposes, if any, for which management uses the
measure;
5.
ensure a reader can easily determine how the additional GAAP measure is calculated in relation to minimum
disclosure items required by IFRS on the face of financial statements or in the notes to financial statements;
6.
present additional GAAP measures consistently over time or explain any change and the reason for the
change in the notes to financial statements.
Form 51-102F1 Management's Discussion and Analysis discusses management's objective when preparing the MD&A, and
states that the MD&A should help current and prospective investors understand what the financial statements show and do not
show. Generally, in order to meet this objective, an issuer's MD&A should discuss and analyze additional GAAP measures.
EBITDA and EBIT
As discussed in section II of this notice, terms used to identify non-GAAP financial measures may include EBITDA. While
EBITDA is generally a non-GAAP measure presented outside the financial statements, in some cases it may be possible for an
issuer to present EBITDA as a subtotal in its statement of comprehensive income, i.e. as an additional GAAP measure.
Similarly, it may be possible to present EBIT as a subtotal in the statement of comprehensive income. Consistent with practice 5
above, presenting EBIT or EBITDA as a subtotal would only be appropriate if the amounts for interest, taxes, depreciation and
amortization, as applicable, are clearly identified on the statement of comprehensive income and presented below the subtotal.
These amounts will not be clearly identifiable on the statement of comprehensive income if, for example, an entity classifies
expenses according to their function.
Consistent with practice 1 above, it would be misleading to exclude amounts for items such as restructuring expenses, fair value
changes or impairment losses in calculating EBITDA or EBIT.
Results from Operating Activities
Some issuers present a line item named “results from operating activities” or similar subtotals in their statements of
comprehensive income. We remind issuers of the material on this topic in IAS 1 Basis for Conclusions, paragraph 56 which
states:
“The Board recognizes that an entity may elect to disclose the results of operating activities, or a similar line
item, even though this term is not defined. In such cases, the Board notes that the entity should ensure that
the amount disclosed is representative of activities that would normally be regarded as “operating”. In the
Board’s view, it would be misleading and would impair the comparability of financial statements if items of an
operating nature were excluded from the results of operating activities, even if that had been industry
practice. For example, it would be inappropriate to exclude items clearly related to operations (such as
inventory write-downs and restructuring and relocation expenses) because they occur irregularly or
infrequently or are unusual in amount. Similarly, it would be inappropriate to exclude items on the grounds
that they do not involve cash flows, such as depreciation expense and amortization expenses.”
Adjusted Statement of Comprehensive Income and Additional Columns
Staff have observed instances of issuers providing an ”adjusted” statement of comprehensive income that omits certain items
from the statement of comprehensive income that are required by IAS 1. IFRS and securities legislation specify the individual
statements and periods for which information must be included in annual financial statements and interim financial reports. Staff
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is concerned that investors may be confused or even misled by presentation of an adjusted statement of comprehensive income
or additional columns within the statement of comprehensive income.
V.
Disclosing an Additional GAAP Measure Before Filing Financial Statements
An issuer may present an additional GAAP measure in a press release or some other location outside of an issuer’s financial
statements or MD&A before filing on SEDAR its financial statements that include the additional GAAP measure. In order to
avoid any confusion about the additional GAAP measure, management should describe the additional GAAP measure and
explain its composition. This may be accomplished by:
VI.
•
reconciling the additional GAAP measure to the most directly comparable minimum line item that will be
presented in financial statements (for example, profit or loss or cash flows from operating activities), or
•
including a copy of the statement that contains the additional GAAP measure (for example, the statement of
financial position or the statement of comprehensive income).
Distributable Cash
National Policy 41-201 Income Trusts and Other Indirect Offerings provides additional guidance on measures of cash available
for distribution.
VII.
Forward-Looking Information
The contents of this notice apply equally to disclosure of forward-looking non-GAAP financial measures.
VIII.
Questions
Please refer your questions to any of the following individuals:
Louis Auger
Analyste en valeurs mobilières
Autorité des marchés financiers
Phone : (514) 395-0337 ext. 4383
E-mail : louis.auger@lautorite.qc.ca
Nicole Parent
Analyste en valeurs mobilières
Autorité des marchés financiers
Phone : (514) 395-0337 ext. 4455
E-mail : nicole.parent@lautorite.qc.ca
Cameron McInnis
Chief Accountant
Ontario Securities Commission
Phone : (416) 593-3675
E-mail : cmcinnis@osc.gov.on.ca
Marion Kirsh
Associate Chief Accountant
Ontario Securities Commission
Phone : (416) 593-8282
E-mail : mkirsh@osc.gov.on.ca
Mark Pinch
Senior Accountant
Ontario Securities Commission
Phone : (416) 593-8057
E-mail: mpinch@osc.gov.on.ca
Lara Gaede
Chief Accountant
Alberta Securities Commission
Phone : (403) 297-4223
E-mail : lara.gaede@asc.ca
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Brian Banderk
Associate Chief Accountant
Alberta Securities Commission
Phone: (403) 355-9044
E-mail: brian.banderk@asc.ca
Carla-Marie Hait
Chief Accountant
British Columbia Securities Commission
Phone : (604) 899-6726
E-mail : chait@bcsc.bc.ca
Manuele Albrino
Associate Chief Accountant
British Columbia Securities Commission
Phone: (604) 899-6641
E-mail: malbrino@bcsc.bc.ca
February 17, 2012
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